Question

Perfect Pet Collar Company makes custom leather pet collars. The company expects each collar to require 1.70 feet of leather and predicts leather will cost $2.90 per foot. Suppose Perfect Pet made 65 collars during February. For these 65 collars, the company actually averaged 1.90 feet of leather per collar and paid $2.40 per foot.

Required:
1. Calculate the standard direct materials cost per unit. (Round your answer to 2 decimal places.)



2. Without performing any calculations, determine whether the direct materials price variance will be favorable or unfavorable.



3. Without performing any calculations, determine whether the direct materials quantity variance will be favorable or unfavorable.



6. Calculate the direct materials price and quantity variances. (Round your intermediate calculations and final answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)

Answer 1

1	Calculation of the standard direct materials cost per unit :-
			Feet per unit		Cost per foot		Cost per unit
			a		b		c =a*b
	Direct materials		1.70		$                                                2.90		4.93
	Standard direct materials cost per unit	=	$                                         4.93
2	Direct material price variance will be favorable because actual price paid per foot is $2.40 while the standard cost per foot was $2.90. So we have paid less than standard which results in savings.
3	Direct material quantity variance will be unfavorable because actual quantity used per collar is 1.90 feet while the standard quantity per collar was 1.70. So we have used more than standard which results in higher cost.
6	Calculation of variances :-
	Direct materials price variance :-
	Direct materials price variance	=	Actual quantity purchased	× (	Actual Price	-	Standard Price	)
		=	65 units * 1.90 feet	× (	2.40	-	2.90	)
		=	123.50	× (	2.40	-	2.90	)
		=	123.50	×	-0.50
		=	-$61.75		F (Favorable)
	Direct materials quantity variance :-
	Direct materials quantity variance	=	Standard Price	× (	Actual quantity	-	Standard quantity	)
		=	2.90	× (	65 units * 1.90 feet	-	65 units * 1.70 feet	)
		=	2.90	× (	123.50	-	110.50	)
		=	2.90	×	13.00	-
		=	$37.70		U (Unfavorable)

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